Is the Market Imperfect?
In January, 1991, the nonprofit Venice Hospital in Florida was fined $2.3 million. Its crime was that it encouraged patients to buy from its medical equipment supply business.1
Eight Ivy League universities and the Massachusetts Institute of Technology were charged by the Justice Department in May, 1991, with the felony of agreeing on the amounts of financial aid they would provide to prospective students.2 The universities, however, refused to admit any wrongdoing.
In the same month the B. Manischewitz Company was fined $1 million for agreeing with two other firms, in the course of a customary restaurant meal, on the price they would charge for Passover matzo.3
In August, 1991, two antique dealers were fined $100,000 and $50,000 for agreeing not to bid against one another at an auction.4
These are only a few of the many penalties, some much heavier, inflicted on individuals and institutions during 1991 on the grounds that they restrained trade. They used neither force nor fraud, all the activities concerned were voluntary; yet they were convicted of causing harm.
The laws under which these penalties are imposed reflect the assumption, common in the United States at least since the case of Standard Oil that led to the Sherman Anti-Trust Act of 1890, that the market system, desirable though it might be as the basis of the economy, functions imperfectly in some situations and must then be regulated by government. Left to itself the market can produce an imbalance of power, not only through monopoly but also through its opposite, excessive competition; and an imbalance of power is automatically harmful, it is